PG&E Corp., owner of the biggest U.S. power utility by customers, said on Jan. 14 it is preparing to file for Chapter 11 bankruptcy protection as soon as this month amid pressure from potentially crushing liabilities linked to California’s catastrophic wildfires in 2017 and 2018.
PG&E, which provides electricity and natural gas to 16 million customers in northern and central California, faces widespread litigation, government investigations, and liabilities that could potentially exceed $30 billion due to the fires, the company said.
The most recent fire last November killed at least 86 people in the deadliest and most destructive blaze in California history.
Its shares plunged 55 percent on Jan. 14 to $8.92, giving it a market capitalization of less than $5 billion. The stock is down 88 percent from late 2017 before wildfires devastated PG&E’s service areas.
PG&E’s chief executive officer was replaced on Jan. 13 by general counsel John Simon on an interim basis.
San Francisco-based PG&E is working on lining up roughly $5.5 billion in so-called debtor-in-possession financing to help operations during bankruptcy proceedings.
The utility said the bankruptcy process will not affect electric or natural gas services to customers. Company advisers expect that it may take up to two years to emerge from bankruptcy.
In theory, California politicians could avert PG&E’s bankruptcy with legislative action. Last year, the state approved a law helping utilities recoup costs from fires in 2017, but not blazes in 2018.
Both lawmakers and regulators may be constrained in how much more they can help PG&E, at least by allowing it to further raise electricity rates.
California’s average rate is 16 cents per kilowatt-hour, while those in neighboring Oregon and Washington are approximately half as much, according to data from the U.S. Energy Information Administration provided by energy consulting firm McCullough Research. The U.S. average is 10 cents per kilowatt-hour.
PG&E said in a securities filing it could potentially raise more money and avoid seeking bankruptcy protection but argued such a move would be complex, uncertain, and expensive.
Moody’s and S&P both recently cut PG&E’s credit rating deeper into junk territory, citing concerns that the company required dramatic government intervention to shore up its finances. The actions resulted in significant financial constraints for PG&E, the company said.
A bankruptcy filing could help the company deal with such fundamental problems as the prospect of continually being exposed to financial fallout from future wildfires, the company said. Many PG&E customers live near dry forests where rain has become increasingly rare—conditions for potential future blazes.
PG&E’s regulator, the California Public Utilities Commission, began in late December to investigate whether the company should make significant structural changes, including becoming owned by the state or splitting up its businesses.
PG&E said it could face “significant liability” in excess of its insurance coverage if its equipment was found to have caused the Camp Fire that swept through the California mountain community of Paradise last November.
PG&E’s liabilities from that fire could be catastrophic if authorities determine its equipment caused the blazes. Under California law, utilities are exposed to liability from wildfires regardless of their negligence. The company decided to prepare to file for bankruptcy in part to address that issue, known as “inverse condemnation.”
In a regulatory filing, it questioned whether it could continue to operate in the years ahead as a so-called investor-owned utility by being exposed to that risk. Investors might avoid the company if questions around that risk remain unanswered.
A federal judge last week proposed restricting PG&E from using power lines deemed unsafe during high winds in this year’s fire season.
Energy companies that supply PG&E could be hit by its bankruptcy. One of the most exposed is Kinder Morgan Inc., the second largest North American pipeline operator, analysts said.
The company’s board ousted CEO Geisha Williams and decided to undergo a restructuring at a meeting this weekend in San Francisco, according to a source familiar with the matter. Williams had served as CEO since March 2017, before the fatal blazes.
PG&E, which drew down remaining amounts on credit lines totaling $3.3 billion in November, had about $1.5 billion of liquidity as of Jan. 11. A notice to employees about a pending bankruptcy could potentially dry up PG&E’s access to capital.
By Liana B. Baker, Mike Spector & Jessica DiNapoli